Understanding Negative Gearing in Taxation Law

This article discusses negative gearing in taxation law, its benefits, and proposed changes. It defines negative gearing and explains how it offers tax benefits to investors. The article also discusses the recent reformation in negative gearing and how it may affect taxpayers. It further explores the probable changes in negative gearing policy and how it may impact investors. The article concludes by discussing the tax benefits that an individual taxpayer may experience with a taxable income of 100k in the income year.

Running head: TAXATION LAW
Taxation Law
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Table of Contents
Answer to Part 2B:.....................................................................................................................2
References:.................................................................................................................................4

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Answer to Part 2B:
Negative gearing can be defined as the type of financial leverage where an investor
borrows the sum of money to purchase the revenue generating investment. The gross income
derived from such investment is lesser than the cost of acquiring and administering the
investment together with the depreciation and interest that is charged on the loan. The
strategy offers the taxpayer with the exposure of probable gains and losses (Pawson 2018).
This strategy is very popular for the taxpayer as the tax losses can be lowered by the investors
in respect to their taxable income. This would help the investors in benefiting from the
reduced income tax bill.
Recent reformation in negative gearing might offer the investors with the tax
concession. The changes that is proposed may provide the taxpayers with the tax breaks
which would reduce the negative gearing deduction by 57.3% (Rogers, Nelson and Wong
2017). The changes in the model proposes that investors under 50% income distribution slab
or those having modest income would obtain the benefit of receiving 100% deduction.
The proposed future changes would provide the investors in claiming an allowable
deduction for majority of the outgoings together with the interest on loan as the taxpayer can
produce more income. Probable changes in negative gearing may enable the investors in
experiencing progressive rental deductions whereas a less wealthy investor might witness a
noteworthy decline in tax savings (Cho, Li, and Uren 2017). Further changes that may
happen in negative gearing policy is that the CGT tax discount may be cut up from the
current 50% to 25% by restricting the negative gearing to new rental houses.
An individual taxpayer with the taxable income of 100k in the income year may
experience certain tax benefits (Chappell and Campbell 2018). Taxpayers at 30% marginal

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tax rate can obtain the benefit of 2.5% allowance under division 43. The taxpayers can obtain
reduction in cost base leading to larger taxable income capital gains or reduced capital loss.

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References:
Chappell, J. and Campbell, N., 2018. The Housing Gap—Sydney, Australia. In Sustainable
Development Research in the Asia-Pacific Region (pp. 293-304). Springer, Cham.
Cho, Y., Li, S.M. and Uren, L., 2017. Negative Gearing Tax And Welfare: A Quantitative
Study For The Australian Housing Market.
Pawson, I., 2018. Reframing Australia's housing affordability problem: The politics and
economics of negative gearing. Journal of Australian Political Economy, The, (81), p.121.
Rogers, D., Nelson, J. and Wong, A., 2017. Full House: how property pressures impact
intercultural relations. Disruptive Asia: Asia’s Rise and Australia’s Future, pp.47-50.